Students of post-Cold War aerospace are intimately familiar with “the Last Supper,” the pivotal 1993 episode that purportedly led to the restructuring of the defense-industrial base. Then-Defense Secretary Les Aspin sat down with all the industry chiefs and explained that there were not enough seats at the table, and that industry overcapacity necessitated the mega-mergers we saw in the 1990s.

But what if this narrative is misleading? The Last Supper may have been the harbinger of restructuring, but it wasn’t the primary cause. It’s more accurate to say the industry restructured in response to diminishing program opportunities, key program decisions and changing investor expectations. From this viewpoint, the imminent Long-Range Strike Bomber (LRS-B) decision looms very large (see photo).

Consider the military aircraft industry. The Advanced Tactical Aircraft (ATA), Advanced Tactical Fighter (ATF and its naval version NATF), Joint Advanced Strike Technology (JAST) and Joint Strike Fighter (JSF) decisions led to the industry we have today. The 1988 ATA selection killed Grumman’s and Vought’s hopes of getting a new aircraft (and led to the General Dynamics/McDonnell Douglas A-12 fiasco). The 1991 ATF decision killed off Northrop’s hopes of landing a new aircraft program, helping to create the Northrop Grumman merger.

Five years later (and three years after the Last Supper), the JAST downselect killed McDonnell Douglas’s hopeless design, helping to precipitate the company’s absorption into Boeing just after its loss. The JSF decision, in 2001, gravely damaged Boeing’s hopes of winning a next-generation follow-on to its legacy McDonnell programs. That leaves Lockheed Martin as the only certain combat aircraft prime.

The survival of a second prime depends on LRS-B. While the Air Force and Navy have begun planning for “sixth-generation” fighters, that will not produce anything tangible for another 10 years at least.

If you believe government fiat shapes the industry, you might think the days of the mega-merger are over. In 2011, key Defense Department (DoD) leaders including Ashton Carter (now secretary-designate, and present at the original Last Supper as an assistant secretary) made it clear there would be no more top-tier defense mergers. To coin an oxymoron, there would be no second Last Supper. LRS-B, in this view, is just one of many defense competitions.

But if you believe the industry is actually shaped by market forces, the implications of LRS-B are far more profound. Whoever loses LRS-B will lose the capability to be a combat aircraft prime. The loser almost certainly will not be around to bid on F-X or F/A-XX and could decide to sell its other defense assets. Last Supper-like edicts may be feasible when it comes to platform integrators, but if a company doesn’t have a military aircraft integration capability, how could DoD consider them “top-tier”?

Look at the situation from the standpoint of the participants. Boeing, joined with Lockheed Martin for its LRS-B bid, has a thriving commercial jetliner business, with associated military derivatives. Yet Boeing’s X-32 JSF entrant was its first fighter design in many decades. All of its other combat aircraft are McDonnell Douglas platforms. The last F/A-18E/F/G is to be delivered in 2017 and the last F-15 in 2018. An LRS-B loss means Boeing will exit the combat aircraft business.

The other LRS-B competitor, Northrop Grumman, delivered its last combat aircraft, a B-2, in 1997. But it still can be classified as a military airframe prime because it has preserved some legacy capabilities along with high-end UAV work. Northrop Grumman also created the most recent bomber, the B-2, which will likely have design features in common with the LRS-B. In tandem with its LRS-B efforts, Northrop Grumman has announced design work on sixth-generation fighter concepts.

If Boeing loses and Northrop wins, that would increase the latter’s appeal as an acquisition candidate. If Boeing were to acquire Northrop aerospace unit, it would get LRS-B, along with an F-35 share. DoD could stop this acquisition, but that would just mean killing Boeing as a combat aircraft prime.

But if Northrop Grumman loses LRS-B, its combat airframe work will be restricted to a few more years of F/A-18E/F/G co-prime work, and its relatively small share of the F-35 program. Investors may well decide the company’s other assets are worth more than the sum of their parts, making it a strong breakup possibility. While DoD may be able to stop a mega-merger, it may find it harder to stop the company from selling individual units. Without LRS-B, there would be no defining center that DoD could identify as core to the company.

In short, the LRS-B decision also will likely bring a downselect from three military airframers. No dinner table edict can change that. The defense industry, like any other, is shaped more by market realities than by government fiat. 

Richard Aboulafia is vice president of analysis at Teal Group. He is based in Washington. 

 

A version of this article appears in the February 2-15, 2015 issue of Aviation Week & Space Technology.